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2015 Supreme(Del) 4054
DELHI HIGH COURT
S. Muralidhar, Vibhu Bakhru, JJ.
Mool Chand Khairati Ram Trust - Appellant
Versus
Director of Income Tax (Exemptions) - Resopndent
ITA No. 141 of 2013
Decided On : 27-07-2015
For the Respondent: Mr. Raghvendra Singh, Junior Standing Counsel.
The main legal point established in the judgment is the interpretation of the conditions for grant of exemption under Section 11 and 12 of the Income Tax Act, 1961, and the application of the principle of consistency in annual assessments while considering the exemption under Section 11 of the Act.
Headnote:
Income Tax Act - Charitable Trust - Section 11, 12 - Summary of Acts and Sections: The court discussed the application of Section 11 and 12 of the Income Tax Act, 1961, and the conditions for grant of exemption. It highlighted the interpretation of 'such purposes' under Section 11(1)(a) and the requirement that income must be applied for the charitable or religious purpose for which the property is held in Trust. The court also addressed the power of the Assessing Officer to examine whether the income is applied towards the charitable or religious purpose for which the property is held in Trust, and the impact of registration under Section 12A of the Act on the conditions of Section 11. The court emphasized the principle of consistency and the need for the AO to conduct an annual assessment while considering the exemption under Section 11 of the Act.
Fact of the Case:
The Assessee, a Charitable Trust, appealed against the denial of exemption under Section 11 and 12 of the Income Tax Act, 1961, for running a hospital providing Allopathic and Ayurvedic treatment. The Assessing Officer (AO) denied the exemption, stating that the Assessee's activities were not in accordance with its objects as per the trust deed. The Assessee contended that its activities fell within the meaning of charitable purposes as defined under Section 2(15) of the Act and that it was entitled to the exemption under Section 11 and 12 of the Act.
Finding of the Court:
The court found that the Assessee's activities were not ultra vires its objects and that running an integrated hospital providing Allopathic and Ayurvedic treatment was conducive to the objects of the Trust. The court also held that the AO was not justified in denying the Assessee's claim under Section 11 of the Act, and that the principle of consistency applied, barring the Revenue from challenging a position that had been sustained over several decades without any material change. The court concluded that the Assessee was entitled to the exemption under Section 11 of the Act and that depreciation on assets used for providing Allopathic systems of medicine should be allowable.
Issues: The issues addressed by the court included the denial of exemption under Section 11 and 12 of the Act, the application of the conditions for grant of exemption, the power of the Assessing Officer to examine the application of income towards the charitable or religious purpose, and the impact of registration under Section 12A of the Act on the conditions of Section 11. The court also considered the principle of consistency and the AO's power to conduct an annual assessment while considering the exemption under Section 11 of the Act.
Ratio Decidendi: The court's decision was based on the interpretation of 'such purposes' under Section 11(1)(a) and the requirement that income must be applied for the charitable or religious purpose for which the property is held in Trust. The court emphasized the principle of consistency and the need for the AO to conduct an annual assessment while considering the exemption under Section 11 of the Act.
Final Decision: The court set aside the impugned order of the Tribunal, disposed of the appeal in favor of the Assessee, and held that the Assessee was entitled to the exemption under Section 11 of the Act. The court also concluded that depreciation on assets used for providing Allopathic systems of medicine should be allowable.
Vibhu Bakhru, J.:
1. The Appellant, a Charitable Trust, has preferred the present appeal under Section 260A of the Income Tax Act, 1961 (hereafter the ‘Act’) impugning the order dated 3rd February, 2012 passed by the Income Tax Appellate Tribunal (hereafter the ‘Tribunal’) in ITA No. 5681/DEL/2010.
2. By the impugned order, the Tribunal allowed the appeal filed by the Revenue assailing the order of the Commissioner of Income Tax (Appeals), which in turn had allowed the appeal preferred by the Assessee against the assessment order dated 30th December, 2008 passed in respect of the Assessment Year 2006-07. The Assessing Officer (hereafter ‘AO’) had denied the exemption claimed by the Appellant (hereafter the ‘Assessee’) under Section 11 and 12 of the Act as the AO was of the view that the activities of the Assessee were not in accordance with its objects. In addition, the AO also denied the Assessee’s claim for depreciation on assets purchased by the Assessee by application of its income that was exempt under Section 11 of the Act.
3. Aggrieved by the assessment order, the Assessee preferred an appeal before the CIT (Appeals). The Assessee contended that the Assessee was a charitable institution engaged in running a hospital (both Allopathic and Ayurvedic) and the same constituted a charitable purpose within the meaning of Section 2(15) of the Act. It was urged that as the Assessee had applied its income for charitable purposes, the same was exempt under Section 11 and 12 of the Act. The Assessee further contended that it had been granted registration under Section 12A of the Act after considering the nature of its activities and, therefore, it was not open for the AO to deny the exemption under Section 11 of the Act.
4. The aforesaid contentions were accepted by the CIT (Appeals). In addition, the CIT (Appeals) also held that the Assessee was entitled for depreciation on the assets purchased by application of its income, which was exempt under Section 11 of the Act.
5. The Revenue appealed against the aforesaid decision of CIT (Appeals) before the Tribunal being ITA No. 5681/DEL/2010. The Tribunal accepted the Revenue’s contention that the properties of the Assessee had not been applied towards its objects. The Tribunal held that the Assessee’s activities relating to Allopathic system of medicine had more or less supplanted the activities relating to Ayurvedic system of medicine and concluded that pre-dominant part of the Assessee’s activities exceeded the powers conferred on the trustees and the objects of the Assessee Trust were not being followed. The Tribunal held that whilst the activities of the Assessee relating to providing medical relief by the Ayurvedic system of medicine were intra vires its objects, the activities of providing medical reliefs through Allopathic system of medicine was ultra vires its objects. Consequently, the Assessee was not entitled to exemption under Section 11 of the Act in respect of income from the hospital run by the Assessee, which offered medical relief through Allopathic system of medicine. Accordingly, the Tribunal directed that the income and expenditure of the Assessee from the activities relating to the two disciplines of medicine, namely Ayurveda and Allopathy, be segregated.
6. Insofar as the Assessee’s claim for depreciation was concerned, the Tribunal held that deprecation on assets, used for providing relief through Ayurvedic system of medicine or used in education and research relating to Ayurvedic system of medicine, was allowable notwithstanding that the expenditure on purchase of the assets was exempted under Section 11(1)(a) of the Act. However, insofar as the assets purchased for providing medical relief through Allopathic system of medicine was concerned, the Tribunal held that depreciation would not be available if the expenditure incurred on purchase of the assets had been exempted under Section 11(1)(a) of the Act.
7. Aggrieved by the impugned order, the petitioner p
